The EUR/USD exchange rate continued risng on Friday as the US dollar index (DXY) neared a key support level. The EUR to USD exchange rate was trading at 1.1061, the highest level since April 2022. In all, the pair has jumped by more than 15% from its lowest point in 2022.
DXY index crash
The main reason why the EUR/USD pair has jumped sharply is that the US dollar index has been in a strong downward trend. It has moved to a low of $100.8, which is much lower than last year’s high of $115.
A closer look shows that the US dollar has slumped against most developed country currencies. For example, it has fallen by 12% against the Japanese yen, 20% against the British pound, and 12.5% against the Swiss franc.
This price action is because investors anticipate that the rate hiking cycle that we saw in 2022 is nearing its end. In fact, the Fed slowed its rate increases to 0.50% in December from the previous four 0.75%. It has hiked by 0.25% in the past two meetings.
Signs are emerging that are more supportive of a Federal Reserve pivot. For example, data published last week showed that the number of job vacancies in the US fell to below 10 million for the first time since 2021.
Additional data showed that wage growth continued falling even as the overall unemployment rate slipped to 3.5%. The manufacturing and services PMIs were a bit disappointing as well. And this week, data revealed that the American inflation data continued falling in March.
And minutes of the FOMC showed that there were concerns that the US was barreling towards a recession. On the other hand, the European economy is doing well as it looks to dodge a recession this year.
EUR/USD technical analysis
EUR/USD chart by TradingView
The daily chart shows that the EUR to USD exchange rate managed to cross the important resistance point at 1.1030. By crossing this price, the pair invalidated the double-top pattern that has been forming. I wrote about this pattern here. The neckline of this pattern was at 1.0500. The pair moved above the 25-day and 50-day moving averages.
Therefore, the pair will likely continue rising as buyers now target the next resistance at 1.1500, which is ~4.2% above the current level. A drop below the support at 1.100 will invalidate the bullish view. If this happens, the DXY index will drop to about $95.
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